Will Lumia 900 Sales At AT&T Boost Nokia's Q2?

| About: Nokia Corporation (NOK)

Nokia (NYSE:NOK) is launching Lumia 900 exclusively at AT&T (NYSE:T), at a price tag of $99, on April 8th. The Lumia 900 sports the smooth and stylish Windows Phone 7.5 Mango operating system from Microsoft (NASDAQ:MSFT), and won many awards at CES 2012, including CNET's "Best of CES" smart phone. AT&T is promising the Lumia 900 launch to be its biggest ever, and yes it said that this is going to be bigger than Apple's (NASDAQ:AAPL) iPhone launch. So let us analyze how many Lumia 900s AT&T can sell for Nokia in Q2 2012, and the impact on its revenue.

AT&T Smart Phone Sales In Q4 2011

Since AT&T is the exclusive carrier of Lumia 900, the upper bound for Lumia 900 is the average number of smart phones that AT&T sells in a single quarter. AT&T saw 9.4 million smart phone sales in Q4 2011. This was double the sales from Q3 2011, and 50% more than AT&T's previous quarterly smart phone sales record of 6.1 million. Since Q4 is a holiday quarter, AT&T smart phone sales in Q2 2012 may not be able to match this number. However, since smart phone sales are on an increase, let us assume for ease of computation that AT&T will be able to sell a similar number of smart phones in Q2 2012. Out of the AT&T's 9.4 million smart phones in Q4 2011, iPhones accounted for 7.6 million. And since the Windows Phone market share is really small (< 2%), we can assume that the Research In Motion's (RIMM) Blackberry and Google (NASDAQ:GOOG) Android phones from Motorola (NYSE:MMI), Samsung, HTC, etc. accounted for the remaining 1.8 million.

Smart Phone Buyers Lumia 900 Can Court From Apple's iPhone

Lumia 900 will have to compete with three models of the iPhone: iPhone 3GS selling for $0.99, iPhone 4 selling for $99, and iPhone 4S selling for $199. AT&T said that the majority of the 7.6 million phones in its previous quarter were iPhone 4S. So let us assume that iPhone 4S accounted for 50%, iPhone 4 accounted for 30%, and 3GS accounted for 20%. The smart phone buyers on budget will choose the 3GS, which means the Lumia 900 can target buyers who are looking for smart phones in range of $99-$199, or more. This leaves us with around 6.1 million iPhones (80% of 7.6), from which Lumia 900 will have to grab market share.

AT&T sold a total of 5.9 million smart phones in Q1-Q2 2010 (most being iPhone 3GS), which will be upgradable to the beautiful designed, Siri-based iPhone 4S. Let us say 70% of these customers upgrade. In Q3 2010, AT&T sold 5.2 million iPhones (most being iPhone 4), and let us say 20% of these upgrade to iPhone 4S (since 4 to 4S is not a significant upgrade, these customers may be waiting for the iPhone 5). That leaves us with approximately 1 million smart phones (6.1 million - (70% of 5.9 million) - (20% of 5.2 million)) that Lumia 900 can look forward to. In other words, Lumia 900 can almost grab 15% market share (15% of 6.1 million = 1 million) from the iPhone.

Smart Phone Buyers Lumia 900 Can Court From Android and BlackBerry

For the Blackberry and Android phones, I will keep the analysis simple. Let us say that Lumia 900 can grab twice the market-share from Android and Blackberry than it could grab from iPhone. This equates to 0.54 million smart phones (30% of 1.8 million).

Incremental Revenue for Nokia from Lumia 900

From the above analysis, it is clear that at best we can expect Nokia to sell around 1.5 million (1 million plus 0.54 million) Lumia 900 smart phones through AT&T. Assuming the average price of $500 for the Lumia 900, this will be $750 million in revenue for Nokia. In Q2 2012, Nokia is expected to make $11.47 billion. Consequently, the Lumia 900 sales at AT&T will make at most 6.5% of Nokia's Q2 2012 revenue. I have been pretty aggressive in my assumptions, so if Lumia 900 can make these numbers, we can say it will be a blockbuster launch.

It must be noted that the above analysis is only for Lumia 900 sales at AT&T (only one carrier), and the incremental revenue number is insignificant. However, with a worldwide roll out of Lumia 900 to other countries (Canada, Europe and Asia) this number can be up to 5 times higher, i.e. about 35% in quarterly revenue. So be on the lookout, the Lumia series (610, 710, 800, and 900) can bring Nokia back into relevance with a bang.

Disclosure: I am long NOK, MSFT.